Conspicuous Prosecution in the Shadows: Rethinking the Relationship Between the FCPA's Accounting and Anti-Bribery Provisions

Conspicuous Prosecution in the Shadows: Rethinking the Relationship Between the FCPA’s Accounting and Anti-Bribery Provisions Nathan Golden * ABSTRACT: The Foreign Corrupt Practices Act (“FCPA”) criminalizes foreign bribery by (1) American defendants; (2) defendants who trade stocks in the United States or register with the SEC; and (3) foreign defendants who act in furtherance of foreign bribery while inside the United States It imposes accounting requirements on some potential defendants. Congress meant the FCPA to help developing countries eliminate bribery, and, in so doing, advance U.S. economic and political interests. However, the FCPA has some fundamental flaws—flaws which U.S. enforcement agencies have particularly abused of late. The FCPA is vague. The reticence of defendants to go to trial has kept the courts from clarifying it and allowed prosecutors to interpret it however they like. The FCPA is also imperialist. These problems can be rectified by repealing the anti-bribery provisions and replacing them with a modified accounting requirement inspired by but independent from the accounting provisions. I. INTRODUCTION ............................................................................. 892 II. UNDERSTANDING THE FCPA ......................................................... 894 A. R EASONS FOR P ASSAGE ............................................................. 895 B. T HE FCPA T AKES C ENTER S TAGE ............................................ 896 C. H OW I T W ORKS ....................................................................... 898 1. The Anti-Bribery Provisions .......................................... 898 i. Covered Defendant ..................................................... 898 ii. Actus Reus ................................................................ 899 iii. Mens Rea .................................................................. 900 iv. Exceptions and Affirmative Defenses ........................... 901 v. Penalties .................................................................... 902 2. The Accounting Provisions ........................................... 902 * J.D. Candidate, The University of Iowa College of Law, 2019. 892 IOWA LAW REVIEW [Vol. 104:891 3. Civil Liability .................................................................. 904 III. PROBLEMS WITH THE FCPA .......................................................... 904 A. T HE FCPA I S V AGUE ............................................................... 904 1. What Is a Foreign Official? ........................................... 906 2. Mens Rea ........................................................................ 909 i. What Does “Corruptly” Mean? ................................... 909 ii. The Blurry Line Between the Other Two Mens Rea Elements .................................................... 909 3. What is a Thing of Value? ............................................. 913 4. What Is the Difference Between a Bribe and a Grease Payment? ........................................................... 914 B. T HE FCPA I S I MPERIALIST ....................................................... 916 IV. CONGRESS SHOULD REPEAL THE FCPA’S ANTI-BRIBERY PROVISIONS AND REPLACE THEM WITH A MODIFIED ACCOUNTING REQUIREMENT ........................................................ 920 A. P ROPOSAL ............................................................................... 920 B. E XPLANATION ......................................................................... 924 V. CONCLUSION ................................................................................ 925 I. INTRODUCTION For enforcement of the Foreign Corrupt Practices Act (“FCPA”)—the high-profile U.S. statute that criminalizes certain foreign corrupt payments —2016 was a year for the record-books. The Securities and Exchange Commission (“SEC”) filed more FCPA corporate enforcement actions than it ever had before. 1 And the Department of Justice (“DOJ”) filed 6.5 times as many as it had in 2015. 2 SEC and DOJ complaints were full of questionable legal theories. 3 For example, in eight cases, the alleged bribe recipients were health care workers, despite little evidence that they satisfied the FCPA’s foreign official requirement. 4 Supposed corrupt payments took the form of free beers and rounds of golf, 5 despite occasional assurances by DOJ and SEC officials that they do not pursue trivial payments. 6 Because JP Morgan’s subsidiary supposedly hired friends and relatives of Chinese officials as 1. Mike Koehler, The FCPA’s Record-Breaking Year , 50 CONN. L. REV. 91, 105 (2018). 2 . See id. at 98. 3 . Id. at 93–94. 4 . Id. at 120–21. Under the foreign official requirement, the recipient of the bribe must generally be a foreign government official, foreign political party or candidate to fall within the scope of the FCPA. See infra text accompanying note 124. 5. Koehler, supra note 1, at 111. 6 . See infra note 201 and accompanying text. 2019] CONSPICUOUS PROSECUTION IN THE SHADOWS 893 interns, JP Morgan was forced to pay the SEC $130 million. 7 Yet the SEC cited no authority to support its assertion that giving an internship to an official’s friend or relative constituted an unlawful payment. 8 The First Circuit had actually just ruled to the contrary. 9 Moreover, it is unlikely that JP Morgan possessed the requisite mens rea. 10 And yet almost every corporate defendant settled or otherwise resolved the action without a fight, 11 and the DOJ and the SEC each made more money from FCPA corporate settlements than they ever had before. 12 Agency officials knew the corporations would settle because fighting the charges would be costlier than settling. 13 This Note argues that the FCPA started with honorable goals, but that it is not working. It is an especially vague statute. Courts have not and will not clarify it because FCPA cases virtually never wind up in open court. Given the lack of judicial oversight, a clear statute with bright-line rules is necessary to put defendants on notice and prevent abuse by prosecutors. While global bribery is a serious problem, the FCPA anti-bribery provisions are imperialist. Rather than helping developing countries hold their leaders accountable for violating domestic bribery laws, the FCPA holds foreign business leaders accountable for violating U.S. laws. In the process, the FCPA imposes American rules and values on foreign countries rather than helping those countries implement their own anti-bribery laws. Along the way, it ensures that wrongdoers abroad pay their penalties to U.S. enforcement agencies not 7. Press Release, S.E.C., JPMorgan Chase Paying $264 Million to Settle FCPA Charges (Nov. 17, 2016), https://www.sec.gov/news/pressrelease/2016-241.html. 8. Koehler, supra note 1, at 126–27. 9 . Id. at 129–30 (citing United States v. Tavares, 844 F.3d 46, 54–55 (1st Cir. 2016)). 10 . Id. at 127. Arthur Levitt, a former chairman of the SEC, recently wrote a compelling oped expressing his view of such enforcement actions: [M]y father was New York state comptroller . . . . [Y]es, I probably got at least one or two jobs as a result of knowing people, including my first job as a trainee for Life magazine. But according to financial regulators now looking into the hiring practices of major U.S. banks and multinationals in China—some of which have employed members of influential Chinese families—anyone who once hired me might have been violating ethical and legal standards. Securities and Exchange Commission regulators now suggest that such hiring overseas is a form of untoward influence, akin to bribing foreign officials to win business. The accusation is scurrilous and hypocritical. If you walk the halls of any institution in the U.S. —Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people. Arthur Levitt, ‘ Influence Peddling’ Makes the World Go Round , WALL ST. J. (Dec. 25, 2013, 3:55 PM), https://www.wsj.com/articles/8216influence-peddling8217-makes-the-world-go-round-1388004902. 11. Koehler, supra note 1, at 99. 12. Id. at 107. 13 . See infra notes 103–05 and accompanying text. The defendants did not settle because they found the government’s reading of the law defensible. See Jean Eaglesham et al., Wall Street Pushes Back on Foreign Bribery Probe , WALL ST. J. (Apr. 29, 2015, 7:24 PM), https://www.wsj.com/ articles/wall-street-pushes-back-on-foreign-bribery-probe-1430349863. 894 IOWA LAW REVIEW [Vol. 104:891 the countries they actually hurt. In so doing, the FCPA achieves none of its goals. These problems with the FCPA’s anti-bribery provisions cannot be eliminated through amendment. It is impossible to make the provisions’ application to every hypothetical scenario clear. Thus, aggressive prosecutors will always be able to apply these provisions in creative ways—knowing they will never have to defend their applications in court. Rather, the solution begins with repeal of the FCPA’s anti-bribery provisions and ends with passage of a modified accounting requirement—inspired by but independent from the FCPA’s much lower-profile accounting provisions. Instead of generating a windfall for U.S. enforcement agencies, the reported information will be used to empower foreign governments to address bribery within their borders. Part II of this Note explains the honorable goals behind the FCPA, and how the statute is designed to serve those goals. Part III explains how it is failing those goals as U.S. enforcement agencies exploit flaws in that design. Part IV explains how reformers can repeal the anti-bribery provisions, and pass a modified accounting requirement to bring the FCPA in line with the objectives it was meant to serve. Part V concludes. II. UNDERSTANDING THE FCPA The FCPA prohibits “issuers” and “domestic concerns” from making certain foreign corrupt...